Bush's Disastrous Dollar Policy

Carter Dougherty wrote recently in the International Herald Tribune: "Finance ministers and central bankers have long fretted that at some point, the rest of the world would lose its willingness to finance the United States' proclivity to consume far more than it produces - and that a potentially disastrous free-fall in the dollar's value would result.

"But for longer than most economists would have been willing to predict a decade ago, the world has been a willing partner in American excess - until a new and home-grown financial crisis this summer rattled confidence in the country, the world's largest economy. . . .

"'This is all pointing to a greatly increased risk of a fast unwinding of the U.S. current account deficit and a serious decline of the dollar,' said Kenneth Rogoff, a former chief economist at the International Monetary Fund and an expert on exchange rates. 'We could finally see the big kahuna hit.'"

Rogoff, who teaches at Harvard, wrote earlier this year in the Guardian: "Will the United States ever face a bill for the string of massive trade deficits that it has been running for more than a decade? Including interest payments on past deficits, the tab for 2006 alone was over $800 billion dollars - roughly 6.5% of US gross national product. Even more staggeringly, US borrowing now soaks up more than two-thirds of the combined excess savings of all the surplus countries in the world, including China, Japan, Germany, and the OPEC states. . . .

"In an era in which stock and housing prices are soaring, the central banks of Japan and China are holding almost two trillion dollars worth of low-interest bonds. A very large share of these are US treasury bonds and mortgages. This enormous subsidy to American taxpayers is, in many ways, the world's largest foreign aid program."

Rogoff marvels at how "America's government and consumers have been engaged in a never-ending consumption binge." He writes: "When a fiscally responsible government launches a war, it typically cuts back on other domestic expenditures and raises taxes. The Bush administration did the opposite. . . .

"[S]ome day, the US may well have to pay the bill for its spendthrift ways."

Bush of course famously transformed Clinton-era budget surpluses into huge deficits. And as a result, as Martin Crutsinger reported for the Associated Press this week, the national debt hit $9 trillion for the first time.

As it happens, there was a president speaking to a joint session of Congress about the weak dollar yesterday. But it wasn't Bush.

Francois de Beaupuy writes for Bloomberg: "French President Nicolas Sarkozy told a joint session of the U.S. Congress the Bush administration must stem the dollar's plunge. . . .

"Sarkozy's complaints that the U.S. currency's drop against the euro is undermining European competitiveness struck a discordant note in a summit intended to demonstrate an improving U.S.-French relationship."

Skeptical Questions

In contrast to the carefully coifed questions Bush generally gets from American television anchors, Bush's French and German interlocutors yesterday didn't hesitate to displayed the profound skepticism that accompanies any mention of Bush outside (and increasingly inside) the United States.